Why Won't the Court Help Us When a Shareholder's Not Paying Maintenance?
Oct. 15, 2014 — What does a cooperative need to prove when it sues a shareholder in landlord/tenant court for non-payment? These cases go to trial so rarely that people may not look at the proof the co-op must proffer.
But in 300 East 85th Housing Corp. v. Dropkin, the court considered the co-op's proofs and rendered a decision that is worth examining for several reasons.
The co-op began a summary proceeding in landlord/tenant court against the tenant-shareholders for non-payment of maintenance charges. The court focused on the maintenance (or rent) to be charged. The co-op introduced into evidence its rent ledger for the apartment, which showed money charged, paid, and what amounts remained due, measured back to May 2012, the last time there was a zero balance.
Really? We Have to Show That??
In the court's view, the problem was that the co-op not only had to demonstrate the existence of the contract (the proprietary lease, which it did), but also the terms of the contract. The co-op submitted the maintenance ledger and the minutes of a board meeting that contained a resolution to increase maintenance by 84 cents per share. The board also submitted a letter to all shareholders reporting the maintenance increase. The co-op did not, however, introduce evidence that showed the cash requirements or the full maintenance charges on a per-share basis.
The co-op argued that, because the shareholders previously paid maintenance, the amount was established through what is known as the "voluntary payment doctrine." The court acknowledged that repeated payment of a set amount over time could prove an agreement between the parties, but here the shareholders paid different amounts each month. Accordingly, the doctrine did not apply.
The court concluded that the co-op had not proved the amount of monthly maintenance due and thus it could not collect those fees.
The Takeaway
This case is instructive for a number of reasons. Although it is not clear whether it would have been sufficient, it may be prudent, when co-op boards wish to increase maintenance charges, to adopt resolutions that spell everything out. Although this may appear to be unnecessarily burdensome, such language may have satisfied the court's concerns.
The other noteworthy aspect of the decision is that the co-op's ledger showed a zero balance long after this money would have been due. That is something as to which boards — and more to the point, managing agents — must be diligent. If there is money owed by a shareholder, that amount must be properly reflected on the shareholder's arrears ledger. Absent that, a court may find that the money was paid, waived, or otherwise uncollectible.
Richard Siegler is a partner in the New York City law firm of Stroock & Stroock & Lavan. Dale J. Degenshein is a special counsel for that firm.
Illustration by Liza Donnelly. Click to enlarge
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